Frequently Asked Questions – When Using a Reverse Mortgage to Purchase Your Retirement Home

Purchase your Dream Retirement Home Using a Reverse Mortgage – Home Equity Conversion Mtg.

Now you can purchase your principal residence using loan proceeds from a reverse mortgage.

Below are the most frequently asked questions:

What is HECM for Purchase?

What is the purpose of the program?

What property types are eligible?

Can a lender take application on a property that is under construction?

What property types are eligible?

Are Set Assides Allowed?

 

Are gifts an acceptable source of funding?

Can prospective mortgagors use credit card cash advances towards closing costs?

Are seller concessions allowed?

Is seller financing permitted?

Is the Real Estate Certification required?

Are second mortgages allowed on HECM purchases?

Can prospective mortgagors obtain a loan from another asset to satisfy the closing costs? 

Under what conditions may a senior cancel the purchase transaction?

Can the HECM mortgage participate in a rent back/leaseback with the seller?

Are the mortgage proceeds paid to the seller through escrow? 

Does FHA have special eligibility requirements for first-time homebuyers? 

  1. What is HECM for Purchase? 
    HECM for Purchase allows seniors, age 62 or older, to purchase a new principal residence using loan proceeds from the reverse mortgage.
  • What is the purpose of the program? 
    The program was designed to allow seniors to purchase a new principal residence and obtain a reverse mortgage within a single transaction by eliminating the need for a second closing. The program was also designed to enable senior homeowners to relocate to other geographical areas to be closer to family members or downsize to homes that meet their physical needs, i.e., handrails, one level properties, ramps, wider doorways, etc.
  • What property types are eligible? 
    Existing one-to-four unit properties where construction has been completed and the property is habitable.
  • Can a lender take application on a property that is under construction and not habitable? 
    No. The lender may only take application once the Certificate of Occupancy or its equivalent has been issued.
  • What property types are ineligible? 
    • Cooperative units
    • Newly constructed residence where a Certificate of Occupancy or its equivalent has not been   issued by the appropriate local authority
    • Boarding houses
    • Bed and breakfast establishments
    • Existing manufactured homes built before June 15, 1976; and
    • Existing manufactured homes built after June 15, 1976 that fail to conform to the Manufactured Home Construction Safety Standards, as evidenced by affixed certification labels (e.g., data plate and HUD certification label) and/or lack a permanent foundation as required in HUD’s Permanent Foundations for Manufactured Housing Guide.
  •  Are set asides for property charges (i.e., tax and insurance) allowed? 
    Yes.
  • Are gifts an acceptable source of funding? 
    No. Prospective mortgagors may only use their own money or money obtained from the sale of assets. FHA prohibits the use of loan discount points, interest rate buy downs, closing cost assistance, builder incentives, gifts or personal property given by the seller or any other party.
  • Can prospective mortgagors apply credit card cash advances towards the required monetary investment or closing costs? 
    No. This would be a violation of 24 Code of Federal Regulations 206.32(a), which requires all outstanding obligations connected to the HECM transaction, purchase or otherwise, to be satisfied prior to or on the date of closing.
  • Are seller concessions allowed? 
    No. Seller concessions are applicable to forward mortgages only.
  • Is seller financing permitted? 
    No.
  • Is the Real Estate Certification required? 
    Yes.
  • When purchasing a new principal residence, if the HECM proceeds do not cover the sales price, can part or all of the property’s indebtedness be subordinated behind the first and second HECM liens if the existing lien holder is willing to execute a subordinate agreement? 
    No. All existing liens must be satisfied at the HECM closing.
  • Can prospective mortgagors obtain a secured or non-secured loan from another asset (i.e., car, home equity line of credit, or investment property or second home) to satisfy the monetary investment or closing costs?
    No. Consistent with existing policy, bridge loans and other interim financing methods associated with HECM transactions are prohibited, unless the unpaid or outstanding obligation can be satisfied prior to or on the day of closing.
  • Under what conditions may a senior cancel the purchase transaction? 
    The senior may decide to cancel the purchase transaction at any time prior to the date of closing. If the senior decides to cancel the transaction, he/she must notify all parties in writing. Where earnest money has been provided, the senior should review the sales contract to determine if the earnest money is refundable. The Federal Reserve Board of Governors should be contacted for right of rescission and Truth in Lending Act guidance.
  • Can the HECM mortgage participate in a rent back/leaseback agreement with the seller? 
    No. When purchasing a new principal residence, the HECM mortgagor has 60 days to occupy the home. Unlike a forward mortgage, there is an increased risk to FHA when the home is not occupied by the HECM mortgagor. Prior to closing, the HECM mortgagor and seller should agree to a date for physical occupancy of the property and the lender should confirm occupancy prior to their submission of the case binder to the local HOC for endorsement.
  • Are the mortgage proceeds paid to the seller through escrow? 
    The title company (settlement agent) is responsible for disbursing funds in accordance with State law.
  • Does FHA have special eligibility requirements for first-time homebuyers? 
    No. FHA encourages all first-time homebuyers to meet with a reverse mortgage counselor that offers pre-purchase counseling to educate themselves on the responsibilities of becoming a homeowner. Prior to signing a sales contract, FHA encourages a home inspection of all properties that will serve as collateral for HECM for purchase transactions. The inspection serves two purposes, to determine the magnitude, if any, of repairs and/or rehabilitation the home as well as helps the buyer to negotiate the purchase price in situation where a home requires repair or rehabilitation.

 

.